2025-04-03T14:59:42.000Z

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By Rae Wee, Karin Strohecker, Libby George SINGAPORE/LONDON (Reuters) -Emerging economies worldwide are bracing for sliding currencies and a possible deterioration of their sovereign credit after U.S. President Donald Trump's tariffs brought levies on U.S. imports to their highest levels in 100 years. The worse-than-expected tariff blitz hits Asia -- and some of the world's poorest nations -- the hardest. It could mark a negative turning point for emerging market debt just as many nations had hoped to lure investments after years of risk aversion. "We are immediately concerned by the potential impact of the severe tariffs imposed on a range of emerging economies — an approach which risks further damaging the development prospects of countries already facing worsening terms of trade," said John Denton, Secretary-General of the International Chamber of Commerce. He added that the shifts could cause a cascade of sovereign rating downgrades. Trump unveiled the sweeping set of penalties as high as 50% on allies and antagonists alike, roiling financial markets and stoking fears of a global trade war. The tariffs, which add to existing levies, will hit everything from Madagascar's vanilla, at 47%, to Sri Lanka's textiles at 44%. "The shock to sentiment and capital flows is likely to endure and requires higher risk premia," investment bank JPMorgan said in a note, downgrading its stance on emerging market currencies to "underweight" and calling a possible turning point for emerging market debt. Emerging markets had only last year started to reverse a decade-long deterioration in credit ratings following a wave of defaults, which was accelerated by the fallout from COVID-19 and was a key driver of rising borrowing costs. U.S. investment bank Goldman Sachs said tariffs would add a 1 percentage point drag to GDP growth in China, the world's second-largest economy, which could have a knock-on effect on wider emerging markets. The International Chamber of Commerce's Denton likened the impact to the devastating 1970s energy crisis, which hit the global economy and roiled a swath of emerging market assets. Some investors said tariffs could fundamentally shift how they approach emerging market bets. "If the tariffs remain as it is, we definitely need to think about the structural, export-oriented growth story for EM," said Gary Tan, a portfolio manager at Allspring Global Investments. "If this model is broken, then definitely we have to reconsider how, basically, you invest in EM for growth."